Deputy Prime Minister Nick Clegg has attacked the Institute of Fiscal Studies’ Budget analysis, claiming it fails to take into account other Government policy initiatives.
Clegg says the study ignored capital gains tax increases for higher-rate taxpayers and measured the Budget’s impact “solely on the basis of how much money people could be receiving from and giving to the state at a single moment”.
The IFS report said: “The tax and benefit changes announced in the emergency Budget are clearly regressive, hitting the poorest households more than those in the upper-middle of income distribution.”
But Clegg claims this distributional analysis only tells part of the story.
He says: “Imagine a workless couple living on £5,000 a year in benefits, currently categorised in the bottom decile. If we increase their benefits by £5 a week, they are £5 a week better off. In the language of the IFS, this counts as fairness. But imagine the Government helps that couple find work.
“The fact that this couple’s lives are better disappears from the statistics the very second that those improvements happen.”
IFS senior research economist for direct tax and welfare James Browne says the £825m raised annually by the rise in capital gains tax rates is “probably not enough to significantly alter our conclusions”.
He adds:” Clegg writes about fairness whereas what we have been talking about is progressivity, whether the richest or the poorest lose most as a percentage of income.”